Banks ‘loosen the screws’ as IO lending plummets

APRA’s December Quarterly ADI Property Exposures statistics released today shows that interest-only loans have fallen to 15.22 per cent of new lending, a historic low in terms of percentage share.

In March 2017, 36.26 per cent of all new loans approved by ADIs were interest-only. The new statistics show that this percentage has more than halved.

The big four banks have reduced the share of new interest-only loans to 15.53 per cent, down from 38.43 per cent in March 2017.

RateCity.com.au money editor Sally Tindall said that the results confirmed beyond a doubt that APRA’s interventions were having a marked effect on new borrowing.

“This is complete vindication for APRA,” the money editor said. “Borrowers have accepted their fate: they’ve committed to paying off their mortgages.

“Now the banks have proven to APRA they can remain well under the cap, they’re looking to loosen the screws.

“Over the last month, we’ve seen the big four and a range of challenger banks drop rates for fixed rate interest-only lending, some to pre-March 2017 levels.

“This is only the beginning. The banks have overshot the mark by half, so we expect they’ll continue dropping interest-only rates to rebalance their books.”

However, while the gap between principal and interest and interest-only is set to reduce, Ms Tindall said that the banks are “still making hay” out of the APRA intervention.

“RateCity data shows that, on average, banks are charging 39 basis points more for owner-occupiers paying interest-only and 30 basis points more for investors paying interest-only,” Ms Tindall said.

[Related: ‘IO loans have always been safer’, says NAB chief economist]